2009 (3) TMI 10 - HC - Income Tax

Disallowance u/r 6D should be recomputed by aggregating the expenditure of all tours - Addition on account of duty drawback & cash assistance on accrual basis was not justified - Canteen located in factory is part and parcel of factory building, so entitled to higher rate of depreciation - Assessee entitled to deduction u/s 80G of Rs.2,50,000 instead of 5,00,000 - expenditure incurred on advertisement for appointment/termination of dealers is not recruitment of personnel hence allowable u/s 37

Summary

Issues:
1. Disallowance of expenditure under Rule 6D for employee tours
2. Addition of duty drawback and cash assistance on accrual basis
3. Depreciation rate for canteen building
4. Deduction under section 80G
5. Expenditure on advertisement for appointment/termination of dealers

Issue 1 - Disallowance of Expenditure under Rule 6D for Employee Tours:
The Appellate Tribunal upheld the order of the Commissioner of Income tax (Appeals) to recompute the disallowance under Rule 6D by aggregating the expenditure of all tours instead of each trip of the employees. The court referred to a previous case to justify this decision, ruling against the assessee.

Issue 2 - Addition of Duty Drawback and Cash Assistance on Accrual Basis:
The Appellate Tribunal also upheld the order of the Commissioner of Income tax (Appeals) that the addition of Rs.55,27,000/- on account of duty drawback and cash assistance on accrual basis was not justified. The court cited a previous judgment to support this decision in favor of the assessee.

Issue 3 - Depreciation Rate for Canteen Building:
The court examined whether the assessee was entitled to depreciation on the canteen building at the higher rate applicable to factory buildings. Citing judgments from Madras and Karnataka High Courts, the court concluded that the canteen building, being a necessary part of the factory premises for the welfare of workers, qualifies for the higher rate of depreciation applicable to factory buildings.

Issue 4 - Deduction under Section 80G:
Both parties agreed that this issue was covered by a previous decision of the court. Following the same judgment, the court ruled against the assessee concerning the deduction under section 80G.

Issue 5 - Expenditure on Advertisement for Appointment/Termination of Dealers:
The court analyzed whether the expenditure incurred on advertisement for appointment/termination of dealers falls under the purview of disallowance under section 37(3A) of the Act. The court interpreted the relevant sections and concluded that appointing a dealer is not akin to recruiting personnel, as a dealer is an independent entity appointed under a contract of agency. Therefore, the court ruled against disallowing such expenditure under section 37(3A), favoring the assessee.

In conclusion, the court answered the questions raised in the judgment, disposed of the reference, and made no order as to costs.